A slowdown in the oil sector led to Saudi economic growth easing to an annual 3.8 per cent in the second quarter, the lowest in a year, but business circles have not lost optimism with the economy generating its own momentum from investments in non-oil sectors.

Sentiment is also not overly worried or surprised because oil prices were expected to be comparatively weak anyway and the second quarter customarily grows slower than in the first when the weather is favourable and work is not hindered there being fewer public holidays.

“Momentum in the private sector continues, indicating that despite a decline in oil production, the non-oil private sector as well as state spending could help the kingdom easily achieve the economic growth target of 4 per cent in 2014,” Abdulwahab Abu Dahesh, a Saudi economist, was quoted by Reuters as saying.

An example of the buoyancy can be seen from an agreement the Makkah Chamber of Commerce and Industry (MCCI) had with the Saudi Industrial Property Authority (Modon) to establish new industrial zones. The MCCI wants Makkah to have a new industrial city. Industrialists and traders are happy with the allocation of $23 billion to rebuild Makkah including having train services and new bridges. A Made in Makkah initiative has been launched which chamber officials say will revitalise the Makkah governorate with mainly small-scale industries.

Saudi businessmen appear happy with government support, which they affirm has been instrumental in the brisk industrialistion that has occurred across the kingdom, particularly in the past decade. The government has also provided basic infrastructure to serve the needs of new entrepreneurs who would be interested in investing in the Second Industrial City of Jeddah, just 60km away from Makkah. Industrialisation is clearly gathering pace as the second Al Ahsa Industrial City will be opened soon with 300 million sq m available for businesses.

The capital, Riyadh, which is a bustling industrial area in its own right, will soon have more than 10.1 million sq m of manufacturing land for industrialists. According to Colliers International’s Riyadh Industrial Market Overview, the demand fundamentals combined with increased public and private sector spending pushed up by the average sales price of manufacturing land in private industrial cities and average rental rates of dry storage space.

The overview highlighted that demand would remain strong driven by solid economic fundamentals, a burgeoning population and government plans to increase the economic contribution of the industry sector.

“Despite Riyadh’s industrial master plan’s large forthcoming supply, we expect demand for manufacturing space to maintain solid growth momentum,” Imad Damrah, Colliers International MDD for Saudi Arabia, was quoted as saying in the media.

“With a population nearing six million and the highest GDP in the kingdom, Riyadh continues to attract and promote investment in industrial and supporting logistics facilities.” 

HALCYON DAYS

These are halcyon days for Saudi businessmen. In the first half of this year alone, the value of contracts in Saudi Arabia touched SR124.6 billion ($33 billion) up 21 per cent over the same period in 2013. The power and energy sectors accounted for nearly half of the contract value but while government ministries have predominantly initiated the projects, the private sector has the opportunity to participate to perhaps a greater degree than was the case in earlier years. Private company Alfanar was the largest recipient of energy contracts awarded by Saudi Electricity Company worth SR3.2 billion.

Another private firm that had major pickings was Bin Jarallah Establishment which was contracted to develop infrastructure in the Khamis Mushait region as part of the Saudi Housing Project.

Products from Bahra Cables Company at its plant in Bahra Industrial City

King Abdullah Economic City (KAEC) has launched more than 300 new investment opportunities worth more than $1 billion. The city has already signed agreements with more than 70 international and local firms for projects worth SR10 billion. Companies such as Pfizer Global Pharmaceuticals, Sanofi and Mars are investing for the first time in KAEC’s Industrial Valley, Eight other companies have already begun production. 

Saudi Arabia is awaiting bids from a shortlist of 10 national and international consortiums for Phase 1 of the Makkah Metro which is estimated to cost $16.5 billion.

Saudi Arabia, which has targeted installed solar capacity of 41 GW by 2032, announced recently it would construct solar energy-based power plants in five provinces across the kingdom. The Saudi Electricity Company will develop these projects in coordination with King Abdullah City for Atomic and Renewable Energy (Kacare).

The foreseeable future seems rosy for manufacturers and traders what with more than 80 projects planned or underway, each worth at least $1 billion.

One of them is PeroRabigh which has an $8.5 billion expansion scheme. The company’s existing plant can produce an annual 18 million tonnes of refined products and 2.4 million tonnes of petrochemical products. The new facility, Rabigh 2, comprises a new aromatics complex and an expanded facility to process 30 million standard cu ft per day of ethane and approximately 3 million tonnes per year of naphtha as feedstock to produce a variety petrochemical products.

FINANCING

PetroRabigh has invited banks to provide financing for the project. It is one of several ventures that have sought substantial funding through direct loans or equity participation or a rights issue. Cable manufacturer Bahra, for instance, has already received Islamic financing of $265 million from Standard Chartered Bank. The company will utilise the sum for its expansion plans and distribution network.

BRC Industrial, manufacturer of welded wire mesh, fences, barbed tapes and gates, had 30 per cent of its equity acquired by Sadeed Investment, a company which has pledged to support the steel industry.

Ma’aden, the Saudi Arabian mining company, has received approval to hold a SR5.6 billion rights issue. Ma’aden plans to expand its phosphate and gold operations as well as its aluminium business.

Saudi entrepreneurs are increasingly investing in overseas projects and overseas companies. Advanced Petrochemical Company plans to invest in a billion-dollar project in South Korea. Saudi Aramco and Thai firm PTT propose to build a $22 billion refinery and petrochemical company in Vietnam. And one of the kingdom’s largest construction  companies, Saudi Binladin, has announced that one of its divisions has bought a 50 per cent stake in Italian marble manufacturer Marmi di Carrara in a deal worth $61 million.

A Saudi fund is reported to be a likely buyer of a 30 to 40 per cent stake worth close to a billion dollars in South Korean steelmaker Posco’s construction unit, Posco Engineering & Construction (Posco E&C). It is understood that the fund is interested in Posco E&C expanding in Saudi Arabia, a Korean newspaper reported.